How Long Can the Crowd Be Right?

What strikes me as most prominent in the current global market environment is the emergence of several strong trends that appear as though they may just be getting started. The US dollar ($DX_F $UUP) broke out above key resistance after forming a large rounded bottom/inverted head & shoulders:

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As investors have rushed into the safety of the dollar they have fled the euro ($EURUSD $FXE) and speculators of all shapes and sizes have piled on to achieve the largest all-time speculative net short interest in euro futures ($6E_F):

 

 

Meanwhile, the combination of dollar strength and global growth fears has weighed heavily on commodities with the $CRB breaking major support and testing levels not seen since the summer of 2010:

 

What does this all mean and how far can these trends go before they become overstretched? The crowd clearly loves the dollar just as it hates the euro and commodities, however, the above charts have a serious look about them – the sort of look that tells me there is more to come before these trades become too one-sided. It is always important to remember that by definition the crowd is right most of the time, they are just wrong at the major turns and are slow to realize it.

You can be sure that EUR/USD will experience a powerful 300+ pip short squeeze at some point over the next few weeks but as we all know it is the timing of such a move that matters most – mid-June just before the next Fed meeting seems like as good a time as any for a strong counter-trend move across currency and commodities markets. I’m sure the Fed Chairman is watching the recent dollar strength with an uncomfortable gaze which makes the June 20th FOMC announcement and Bernanke press conference all the more important.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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